Ericsson Warns on Profit as Demand Dries Up -- Update

By Matthias Verbergt and Dominic Chopping 

STOCKHOLM-- Ericsson AB issued a profit warning Wednesday as it continues to battle a severe slowdown in demand for its cellphone towers and switches, just a week after it announced plans to slash almost 20% of its domestic workforce.

The Swedish company said its third-quarter earnings will be "significantly lower" than expected, citing a 19% decline in sales of its core mobile-network equipment business.

Ericsson is being hit hard as spending by mobile-service providers on latest-generation, or 4G, networks has largely dried up, with most mobile broadband projects having been completed last year. At the same time, competition has risen, with Huawei Technologies Co. of China expanding aggressively on Ericsson's traditional European turf and Nordic rival Nokia Corp. building muscle by acquiring Alcatel-Lucent SA.

The company has also been hurt by economic weakness in developing markets such as Brazil, Russia and the Middle East.

It expects to post third-quarter sales of 51.1 billion Swedish kronor ($5.79 billion), down 14% from 59.2 billion kronor last year, with operating profit falling 93% to 300 million kronor from 5.1 billion kronor, partly on restructuring charges of 1.3 billion kronor.

Ericsson is now betting on the development of faster wireless networks, called 5G, and software-based services such as the so-called Internet of Things and cloud computing. But the first revenue from 5G is several years away, and take-up has been slow, analysts say.

Last week, Ericsson announced plans to lay off nearly 20% of its 16,000-strong home-country workforce. The job cuts were a first step in a wider restructuring program in which Ericsson plans to significantly reduce its global staff of 115,000.

Jan Frykhammar--who took over as interim chief executive in July after Hans Vestberg was ousted, having failed to reverse a protracted trend of declining profit and revenue--warned that additional cost-cutting measures may be necessary.

"Continued progress in our cost reduction programs did not offset the lower sales and gross margin," Mr. Frykhammar said. "We will continue to drive the ongoing cost program and implement further reductions in cost of sales to meet the lower sales volumes."

Mr. Frykhammar said he expects the current trends to continue in the short term. Ericsson said it will publish its full third-quarter report on Oct. 21.

Write to Matthias Verbergt at [e-mail] and Dominic Chopping at [e-mail]

(END) Dow Jones Newswires

October 12, 2016 02:58 ET (06:58 GMT)

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